Mining Bitcoins takes power, but is it an “environmental disaster?”

Also, Adam Smith would be appalled.

Bitcoin mining takes a lot of computing power—so naturally someone created a piece of malware to mine on other people's computers.

Kaspersky Lab

Mark Gimein is something of a Bitcoinskeptic, but in addition to his concerns about Bitcoin not being a "real currency," he's now charging that it has created "a real-world environmental disaster."

Writing in Bloomberg News, Gimein notes that mining Bitcoins—performing the computationally expensive calculations needed to define new Bitcoins—uses power. A lot of power. (Read our 2011 Bitcoin primer for more details.) He writes:

About 982 megawatt hours a day, to be exact. That’s enough to power roughly 31,000 US homes, or about half a Large Hadron Collider. If the dreams of Bitcoin proponents are realized, and the currency is adopted for widespread commerce, the power demands of bitcoin mines would rise dramatically.

If that makes you think of the vast efforts devoted to the mining of precious metals in the centuries of gold- and silver-based economies, it should. One of the strangest aspects of the Bitcoin frenzy is that the Bitcoin economy replicates some of the most archaic features of the gold standard. Real-world mining of precious metals for currency was a resource-hungry and value-destroying process. Bitcoin mining is too.

Gimein draws on the stats provided by Bitcoin-focused site Blockchain.info. The numbers fluctuate a bit with each day of calculations being tracked. According to Blockchain's stats this weekend, the last 24 hours of worldwide mining activity burned through 928.24 megawatt hours of power while miners calculated 59,502.6 gigahashes per second. Total power bill: $139,236.07.

Critics are already pushing back against the "environmental disaster" claim. Writing in Forbes, Tim Worstall says the energy being used is "simply trivial," amounting to 0.025 percent of the total US household electricity supply. And worldwide, that percentage would be far lower. Besides, Worstall says, "at some point Bitcoin mining will stop. There is an upper limit to the number that can ever be mined; I think I’m right in saying that we’re about halfway there at present. Thus this energy consumption will not go on rising forever. At some point it will come to a dead stop in fact." (The system is self-limiting, with a max of 21 million bitcoins.)

As for the stats themselves, they're fairly speculative to begin with. The computers calculating hashes are assumed to be using 650W per gigahash—which Blockchain freely admits is an estimate that depends entirely on the efficiency of one's computation hardware. In addition, Blockchain assumes the cost of electricity to be 15 cents per kilowatt hour; here in Chicago, it's only one-third that number. Neither the amount of electricity used nor the cost of that electricity is a number worth putting a huge amount of faith in.

Regardless of the environmental impact, though, writers like Nobel laureate Paul Krugman see Bitcoin mining as a terrible step backward for currencies. He cites Adam Smith on "the fundamental foolishness of relying on gold and silver currency, which—as he pointed out—serve only a symbolic function, yet absorbed real resources in their production, and why it would be smart to replace them with paper currency."

"And now here we are in a world of high information technology," Krugman wrote this week in the New York Times, "and people think it’s smart, nay cutting-edge, to create a sort of virtual currency whose creation requires wasting real resources in a way Adam Smith considered foolish and outmoded in 1776."

137 Reader Comments

What is "outdated" is fractional-reserve banking and the Federal Reserve fixing the monetary system for the benefit of the ultra-wealthy. All monetary systems have issues, because they are only "symbolic". The barter system removes the intermediary, but is inefficient.

So either we stick to the barter system or use a monetary system which is at least attached to something deemed of value and of a known, limited quantity. At least this system can't be manipulated as easily or created out of thin air for the benefit of a few, to the detriment of the many. The other option is to abolish the nonsense of money altogether, but I don't think we're ready for that.

And of course, Bitcoin doesn't have to be the only game in town. Multiple, competing physical and digital currencies may be the best defense to the type of global monetary instability the world has been experiencing.

I sell tin foil hats in bitcoins if you are interested. Its the 3rd largest product sold using bitcoins behind only drugs and hookers.

"Worstall says the energy being used is "simply trivial," amounting to 0.025 percent of the total US household electricity supply."

That it can be expressed as any significant percentage of this is incredible, by any measure that is a LOT of power.

The current bitcoin market cap is worth approximately 1 billion dollars and uses .025% of US household electricity. That would imply (assuming for argument's sake that its velocity and transaction count progressed linearly with its adoption instead of geometrically) that a bitcoin money supply of 4 trillion dollars would use 100% of US household electricity. Current M2 in the US is around 10.4 trillion, so on back of the envelope map alone, BTC is going to have to become much more efficient to be a large scale alternative.

Superficial. Krugman quoting Adam Smith is beside the point. Bitcoin mining happens because, per Adam Smith, people perceive a marginal utility in it. Beyond that, virtual currency is needed because, by and large, geeks are smarter than their governments, and have every right to look out for their own interests.

"Worstall says the energy being used is "simply trivial," amounting to 0.025 percent of the total US household electricity supply."

That it can be expressed as any significant percentage of this is incredible, by any measure that is a LOT of power.

The current bitcoin market cap is worth approximately 1 billion dollars and uses .025% of US household electricity. That would imply (assuming for argument's sake that its velocity and transaction count progressed linearly with its adoption instead of geometrically) that a bitcoin money supply of 4 trillion dollars would use 100% of US household electricity. Current M2 in the US is around 10.4 trillion, so on back of the envelope map alone, BTC is going to have to become much more efficient to be a large scale alternative.

Bitcoin's energy usage has nothing to do with its market cap and very little to do with its transaction volume.

I understand the argument, but it seems like it can be applied to a great many things. Take for example someone who commutes, by themselves, in a large SUV. This is a rather common practice, and internal combustion engines are rather inefficient. I don't have the exact numbers, but I'd be willing to bet the amount of wasted energy in this specific instance dwarfs whatever the bitcoin miners are doing. Figure 15% efficiency and 33.7 kw hours per gallon of gas. An average commute of 30 miles with an SUV getting about 14mpg, so 2 gallons of gas each way or 4 per day. That means 134 kw hours are used -- 113 of it wasted. At 10k people, you're looking at more than 1 terawatt hour per day. And I'm sure there are far more people than 10k people that commute in inefficient vehicles.

"Worstall says the energy being used is "simply trivial," amounting to 0.025 percent of the total US household electricity supply."

That it can be expressed as any significant percentage of this is incredible, by any measure that is a LOT of power.

The current bitcoin market cap is worth approximately 1 billion dollars and uses .025% of US household electricity. That would imply (assuming for argument's sake that its velocity and transaction count progressed linearly with its adoption instead of geometrically) that a bitcoin money supply of 4 trillion dollars would use 100% of US household electricity. Current M2 in the US is around 10.4 trillion, so on back of the envelope map alone, BTC is going to have to become much more efficient to be a large scale alternative.

Bitcoin's energy usage has nothing to do with its market cap and very little to do with its transaction volume.

I think that there is a solution to increasing energy use - but as I understand it energy use is related to market cap and to transaction volume. More transactions presumably means more in transaction fees per block and therefore more BTC revenue per block. A higher market cap means that each unit of BTC becomes more valuable further increasing revenue from mining. And more potential revenue means that the mining network will collectively be incentivized to buy more electriticy.

I posted a speculative equation for the power that the mining network is likely to use based on economic incentives in an earlier reply. As I understand it a higher market cap increases the exchangeRate term in that equation and higher transaction volume increases the revenue term.

Well they already threw John Maynard Keynes under the bus, Why would you expect them to listen to lesser economists. then again it's kind of Krugman's fault for spreading it thin enough to discuss current pop events.

"Worstall says the energy being used is "simply trivial," amounting to 0.025 percent of the total US household electricity supply."

That it can be expressed as any significant percentage of this is incredible, by any measure that is a LOT of power.

The current bitcoin market cap is worth approximately 1 billion dollars and uses .025% of US household electricity. That would imply (assuming for argument's sake that its velocity and transaction count progressed linearly with its adoption instead of geometrically) that a bitcoin money supply of 4 trillion dollars would use 100% of US household electricity. Current M2 in the US is around 10.4 trillion, so on back of the envelope map alone, BTC is going to have to become much more efficient to be a large scale alternative.

Bitcoin's energy usage has nothing to do with its market cap and very little to do with its transaction volume.

I think that there is a solution to increasing energy use - but as I understand it energy use is related to market cap and to transaction volume. More transactions presumably means more in transaction fees per block and therefore more BTC revenue per block. A higher market cap means that each unit of BTC becomes more valuable further increasing revenue from mining. And more potential revenue means that the mining network will collectively be incentivized to buy more electriticy.

I posted a speculative equation for the power that the mining network is likely to use based on economic incentives in an earlier reply. As I understand it a higher market cap increases the exchangeRate term in that equation and higher transaction volume increases the revenue term.

Ah, sorry, I didn't read your earlier post.

That said, there are still a number of fundamental flaws in your argument. Chief among them is the simple fact that compute power is not a function of energy use, not in the long term. We have gone through three generations of mining tech (CPU, GPU, FPGA) and are entering the fourth (ASIC), each one dramatically reducing the amount of energy used per hash mined. There is no reason to believe this trend will not continue. And the block difficulty increases will act as an effective counterforce on the incentive to mine.

1. Who decides who gets to mine the transactions with the higher fees? Is it up for grabs in the community, and the miner with the most powerful rig has the best chance of "solving" the transaction and claiming the fee?

2. Is there really a significant time-delay in "low" priority transactions? If miners can't be bothered to solve the transaction for a low fee, could it take extra seconds [minutes? hours? days? weeks?] for the transaction to be processed?

1. Every node on the bitcoin network verifies and passes along new transactions constantly. Transactions not yet included in a block sit in a memory pool of the bitcoin client software. The person running the mining software gets to choose which transactions they want to include when attempting to form a new "block" and claim the block reward (25 BTC) + any fees for the included transactions. When a new block arrives, the included transactions are removed from the memory pool of recent transactions.

You don't solve individual transactions, you solve a block of them at once. This involves generating a low hash value from the set of transactions, the hash of the *previous* block, plus a random number. The random number is hard to find, turning solving a block into a lottery. Thus no single author can write the history of transactions, it is a distributed effort. Including the previous hash verifies the previous block has not been changed, because then the contents would not match the hash value. In turn, every block verifies the one before it, so the entire history of transactions is known to be correct. For a financial system this is very important.

Since the only way to solve a block is to try lots of random numbers until you find a low enough hash, then the most powerful combination of computers is more likely to find it first, and thus get to claim the reward and fees. Most people mine in pools, because the total hashing power of the network is about 100,000 times a fast GPU mining rig. Pools combine their computing work and share any rewards, thus evening out the income.

2. Transactions arrive in a matter of seconds, fee or no fee. *Confirming* them (including them in a solved block) takes an average of 10 minutes per block. Some miners will include zero fee transactions, others do not, so it may take a few blocks before someone picks it up and includes it, so perhaps 30 minutes. The more blocks that arrive *after* the one with the transaction, the more certain you are that it is valid and unchangeable.

Mining will continue after all bitcoins have been handed down. Without mining no new blocks would be created, without which there would be no confirmation of transactions. Granting bitcoins to miners is just a way to reward those that contribute to the network, but mining must continue past the 21 million point for the currency to continue to be useful. If everyone stopped mining after available coins were discovered, there would be no way to spend them, or size of the network would be too small to stop anyone from controlling it effectively destroying it's decentralized nature.

Can someone explain to me, in plain English, what "bitcoin mining" actually is? I can't seem to find any real world analog to mining to actually understand it.

And, for that matter, how do you even *get* the damn things? I've read through online instructionals and wikis and I still don't know what the fuck is going on. Where is the simple, " I give you X dollars in $currency, you give me Y bitcoins"?

Bitcoin records transactions in a distributed database called the "block chain", where a block is a set of transactions. Each block is verified by a hash value, which is a type of checksum calculated from the contents of the block. Finding the right kind of hash value is purposely made hard, so that the entire network of miners have to cooperate in finding it. Anyone trying to include a fake transaction, like trying to spend bitcoins they don't have in their account, has to include a correct hash along with the block that includes their fake transaction. This is very hard to do against the combined power of the rest of the network.

Preventing fake or altered data in the database is very important for a financial network, so people verifying blocks get a reward of freshly created bitcoins for every proper hash value and new block they find. They also get whatever transaction fees people included in that block of transactions. That's what mining is. It is both how newly created coins enter the system, and how past transactions are verified to be correct.

You get bitcoins when someone sends them to an account number you control. That's a transaction. Account numbers are either stored in a file on your PC, called a wallet, or an online equivalent. Wallets also have a secret key tied to the account number. Whoever has that secret key can spend your coins (send them to someone else), so it's important it remains a secret under your control. If you go to https://localbitcoins.com/ you can find someone to hand cash to, and they make a transaction to send you some coins electronically while you watch. Or you can go to one of the many exchanges listed on http://bitcoincharts.com/markets/ . Exchanges make a business of trading bitcoins for other currencies. You send them funds according to whatever instructions they have, and then you do a buy order at the current rates. You can also sell stuff or get paid for some work in bitcoins, just like with any other currency.

That said, there are still a number of fundamental flaws in your argument. Chief among them is the simple fact that compute power is not a function of energy use, not in the long term. We have gone through three generations of mining tech (CPU, GPU, FPGA) and are entering the fourth (ASIC), each one dramatically reducing the amount of energy used per hash mined. There is no reason to believe this trend will not continue. And the block difficulty increases will act as an effective counterforce on the incentive to mine.

There's nothing that's going to make mining substantially more efficient after adopting ASICs. That's it. ASIC miners are the last generation. After this, future benefits in power and performance will be equal to all mining methods and will come from the hand of Moore's law. You can't make it any better than having a chip whose sole purpose is to mine bitcoins.

Krugman - whatever that man says, is an utter nonsense. I guess it makes a good daily read

A currency has to be rare. It is issued either by a central authority (think paper money), in which case it has to be hard to forge.

Or a rare commodity can be found ("mined") by anyone. It just has to be hard. Money has to be rare, otherwise it doesn't work well - think a 500 billion Yugoslav dinar banknote...

While I probably cannot change your complete and ignorant dismissal of a Nobel Laureate in economics, I will point out that Krugman didn't make the comment so much as he quoted Adam Smith against mining Gold and pointed out that Smith would most likely have the same response to Bitcoin.

I suppose you could completely dismiss both Smith and Krugman....

A lot of morons have received the nobel prize in economics. Economist are like historians. Looking backwards they can give you a great explanation of WTF just happened. The ability to write a neat math formula is cool, but it doesn't make you a prophet. I wouldn't rely on one to say anything useful about the future. There is a reason why they tend to be rich off of writing and speaking engagement, and not by using their l33t economic skills to shovel piles of money into their bank accounts off of their prescient predictions on the market.

Perhaps more importantly, Bitcoin isn't being used by a sovereign nation. The parallels of using a currency that has a finite supply is all in the domain of sovereign nations. It is like pointing to city crime statistics as a reason why you shouldn't be walking in a remote forest at night. No one cares. The point of Bitcoin is not to frig with your nations trade balance, or mess with interest rates, or do any of the social engineering that people try with national currency.

Bitcoin serves its purpose. You convert money to bitcoin, do a transaction, the other end converts their money back to national currency. The entire transaction is anonymous and without built in fees. There is nothing Krugman or anyone else can complain about that suddenly makes the above not true. That is why Bitcoin is here to stay.

I understand the argument, but it seems like it can be applied to a great many things. Take for example someone who commutes, by themselves, in a large SUV. This is a rather common practice, and internal combustion engines are rather inefficient. I don't have the exact numbers, but I'd be willing to bet the amount of wasted energy in this specific instance dwarfs whatever the bitcoin miners are doing. Figure 15% efficiency and 33.7 kw hours per gallon of gas. An average commute of 30 miles with an SUV getting about 14mpg, so 2 gallons of gas each way or 4 per day. That means 134 kw hours are used -- 113 of it wasted. At 10k people, you're looking at more than 1 terawatt hour per day. And I'm sure there are far more people than 10k people that commute in inefficient vehicles.

That example doesn't exactly refute the argument though does it? Large numbers of people commuting 30 miles a day by themselves in large SUVs *is* hugely wasteful and inefficient (maybe not for the individuals on a dollars basis, but it's almost definitely not ideal for society).

In my humble opinion, BitCoin will likely fizzle out in a bubble-like fashion. That being said, the underlying concepts of BitCoin especially those of anonymity will give rise to a successor "currency", BitCoin 2.0 perhaps, that will be less bubble-like in nature.

Make no mistake though, the governments of the world will react violently to get whatever BitCoin or BitCoin-like "currency" under supervision. The concept of the peasantry conducting business without governmental oversight will NOT be tolerated...period.

but how is it better to put faith in a paper system that evolved from a gold standard, all run by software systems that, at their heart, rely on the hope and prayer that someone with the keys to the kingdom didn't invent money out of thin air?

vs. a "paper" money system that is actually backed by cryptography and math?

The traditional fiat money system lets governments manipulate money, which can seem like it comes in handy, is obviously a bomb waiting to go off. I'd rather rely on provable math than the honesty of bankers and the self-control of politicians.

...especially since the bankers seem to have lost their one incentive to stay honest -- other bankers calling them on their shit.

"Worstall says the energy being used is "simply trivial," amounting to 0.025 percent of the total US household electricity supply."

That it can be expressed as any significant percentage of this is incredible, by any measure that is a LOT of power.

The current bitcoin market cap is worth approximately 1 billion dollars and uses .025% of US household electricity. That would imply (assuming for argument's sake that its velocity and transaction count progressed linearly with its adoption instead of geometrically) that a bitcoin money supply of 4 trillion dollars would use 100% of US household electricity. Current M2 in the US is around 10.4 trillion, so on back of the envelope map alone, BTC is going to have to become much more efficient to be a large scale alternative.

Bitcoin's energy usage has nothing to do with its market cap and very little to do with its transaction volume.

I think that there is a solution to increasing energy use - but as I understand it energy use is related to market cap and to transaction volume. More transactions presumably means more in transaction fees per block and therefore more BTC revenue per block. A higher market cap means that each unit of BTC becomes more valuable further increasing revenue from mining. And more potential revenue means that the mining network will collectively be incentivized to buy more electriticy.

I posted a speculative equation for the power that the mining network is likely to use based on economic incentives in an earlier reply. As I understand it a higher market cap increases the exchangeRate term in that equation and higher transaction volume increases the revenue term.

Ah, sorry, I didn't read your earlier post.

That said, there are still a number of fundamental flaws in your argument. Chief among them is the simple fact that compute power is not a function of energy use, not in the long term. We have gone through three generations of mining tech (CPU, GPU, FPGA) and are entering the fourth (ASIC), each one dramatically reducing the amount of energy used per hash mined. There is no reason to believe this trend will not continue. And the block difficulty increases will act as an effective counterforce on the incentive to mine.

I think that we missed each other's points somehow. I agree that compute power is not necessarily tied to electric power. But I do think that electric power is tied to mining revenue potential. Let me provide some concrete scenarios and maybe I can communicate my point more clearly or you can point out a flaw in my reasoning.

Imagine for simplicity that all miners are running essentially the same hardware and are all doing a bit better than breaking even. Let's say that at this point in time the mining network is using 10 MW of power in total. A new technology becomes available that, amazingly, produces hashes at the same rate as the previous technology using half the electricity. The miners see the potential to reduce costs and everybody switches to this new hardware. Each miner's revenue is the same but their costs are cut approximately in half; so now they are all operating on a profit margin of 50%.

Others observe the profitability of bitcoin mining and see an opportunity. They buy their own machines and start mining too. The newcomers also purchase the latest, most efficient hardware. During this time bitcoin value and trade volume have been quite stable so after some block difficulty adjustments total network revenue remains unchanged. New nodes continue to appear until the mining network has doubled in size. At that point there are twice as many people / nodes competing for pieces of the same pie so each node earns on average half of what it did before. Revenues per node have decreased in correspondence with the decrease in operating cost and we are back to the point where everyone is doing a bit better than breaking even. People stop setting up new mining nodes because there is no longer enough profit to be had to justify the initial investment. And the mining network is still using 10 MW of electricity in total. Each node is twice as efficient but there are twice as many of them.

Sometime later BTC value increases relative to other currencies and trading volume increases. As a result the real value of mining revenue from each block doubles. Electric rates and hardware efficiency have not changed substantially, meaning that operating costs have not gone up or down. So now each miner is again operating on a profit margin of 50%. Once again, others observe the profitability of bitcoin mining. And again new mining nodes until, after more block difficulty adjustments, revenues per node again drop by about half. Total network revenue has doubled but it is distributed among twice as many nodes. Everybody is back to the equilibrium point of doing a bit better than breaking even. Now the mining network is using 20 MW electriticy. Each node is no more efficient than before and there are twice as many of them.

Of course reality is more complicated than this. The scenarios like those above are likely to overlap and smear together. I did not account for equipment depreciation or other operating costs. And there are probably issues with limits on the supplies of electricity in areas where electricity is cheapest. But I think that the fundamental point stands: the more revenue is produced through mining or the lower mining costs go, the more people will want to mine.

In technical terms the mining network could handle large increases in trading volume without adding any more computational power. But that is not what is going to happen. Self-interest will cause the mining network to grow or shrink according to the ratio of bitcoin value to electriticy costs. That is why I think that mining efficiency is not a major factor the total amount of power that the mining network will use. I don't think that this is a fatal flaw for bitcoin. I do think that issues like this should be acknowledged so that bitcoin proponents can have the best chance at finding clever solutions and can effectively respond to criticism.

Modern-day fiat currency relies entirely on trust. Trust in banks, trust in governments, trust in government central banks. And if there's anything the last five years have shown us, it's that that trust is being systematically abused. Or rather I should say shown us again, as history is full of currencies being debased because rulers lowered the contents of precious metals in coins to make a quick buck, leading to massive inflation.

Going back to the idea of a limited resource as a placeholder for value, rather than just take the word of thoroughly untrustworthy institutions and individuals seems like a worthwhile notion to me.

I tend to think it is a waste of power. Regardless of the exact number we know the rough order of magnitude (when people get their units right!) and it' fairly significant.

The current top comment about 'mining being essential to the currency process' sounds more like convenient dogma than an actually defendable inevitability. Why don't we create a currency to eliminate the mining process and its associated waste? What about a peer to peer currency sans mining? I don't know exactly how to do it (otherwise I'd have done it already) but perhaps the creators of bitcoin 2.0 could take a bit more care in designing an energy efficient system.

Critics are already pushing back against the "environmental disaster" claim. Writing in Forbes, Tim Worstall says the energy being used is "simply trivial," amounting to 0.025 percent of the total US household electricity supply. And worldwide, that percentage would be far lower. Besides, Worstall says, "at some point Bitcoin mining will stop. There is an upper limit to the number that can ever be mined; I think I’m right in saying that we’re about halfway there at present. Thus this energy consumption will not go on rising forever. At some point it will come to a dead stop in fact." (The system is self-limiting, with a max of 21 million bitcoins.)

This is incorrect. Mining is a vital part of the transaction confirmation process and as such, mining will never stop. What will stop is the issuance of new bitcoins as a reward for mining; instead miners will get a fee from every transaction they process. Because transactions are prioritized according to the transaction fee paid (higher fees = higher priority), transaction fees will provide a strong incentive for miners to continue mining.

Was just about to post the same. In addition, asics will decrease power substantially.

Was just about to post both these comments. Glad to see the community is on the ball.

TL;DR Mining is a vital part of the transaction confirmation process & will go on as long as the currency is in use, in the end there won't be more coins but there will be transaction fees to benefit from. ASIC (Application specific integrated circuitry) miners are about to take over and they are much quicker and much more power efficient.

What is "outdated" is fractional-reserve banking and the Federal Reserve fixing the monetary system for the benefit of the ultra-wealthy. All monetary systems have issues, because they are only "symbolic". The barter system removes the intermediary, but is inefficient.

So either we stick to the barter system or use a monetary system which is at least attached to something deemed of value and of a known, limited quantity. At least this system can't be manipulated as easily or created out of thin air for the benefit of a few, to the detriment of the many. The other option is to abolish the nonsense of money altogether, but I don't think we're ready for that.

And of course, Bitcoin doesn't have to be the only game in town. Multiple, competing physical and digital currencies may be the best defense to the type of global monetary instability the world has been experiencing.

Dude, two guys just said they own 1% of the entire BTC currency. This means that BTC, with so much concentration is so few hands, has tremendous scope for manipulation because it's so easy to corner the market. In contrast central banks target inflation, and inflation is calculated in terms of CPI - based on what *average people buy*.

Bitcoin is not backed 'by maths'. The obfuscated fact is that it's actually backed by blind faith in the tiny percentage of ultra-BTC-rich individuals who can bend the exchanges around their little finger.

I wanted to buy Bitcoins here, in the UK, directly without intermediators on ebay or other middle men (because fees are huge), and I found it very difficult, so I made this guide with the cheapest way:

My understanding was that there was a limited number of bitcoins that can be produced in a certain time, regardless of the computational effort put forth. However, this mechanism would really kick in all the way until the currency has found its niche and is relatively stable.

That presumes firstly a financially stable context in which this currency exists, which couldn't be a more wrong assumption based upon how the short-term profit-motivated Bitcoin networked computer-game economy works in practice. It secondly presumes BC so called "miners" pay their own electric bills. Unless BOFH or Botnet network management effort cost to BOFH is less efficient than I thought , little of the BC mining electricity consumption is going to be a direct cost to the beneficiaries of this activity anyway.

Other more stable designs of network money exist. The local community currency I participate in has been in stable financial operation in value comparison with conventional exchange for over 20 years, over which time all our previously paper based accounting has been transferred to a web application. The rate of value of Covs exchange, compared to Pounds Sterling remains at 1:1 based on what makes sense in relation to mutually supportive trading relationships between users.

I tend to think it is a waste of power. Regardless of the exact number we know the rough order of magnitude (when people get their units right!) and it' fairly significant.

The current top comment about 'mining being essential to the currency process' sounds more like convenient dogma than an actually defendable inevitability. Why don't we create a currency to eliminate the mining process and its associated waste? What about a peer to peer currency sans mining? I don't know exactly how to do it (otherwise I'd have done it already) but perhaps the creators of bitcoin 2.0 could take a bit more care in designing an energy efficient system.

If you want a peer to peer electronic currency sans mining, double entry bookkeeping has been demonstrated to work well at this job within a network of individuals who want to trade. The largest active such system is WirBank in Switzerland, see: http://en.wikipedia.org/wiki/WIR_Bank . For further design information relating to small systems and startup, see also http://www.gmlets.u-net.com/ . Many countries have networks helping new users locate small and active local systems, for example in the UK see: http://www.letslinkuk.net/ .

In my humble opinion, BitCoin will likely fizzle out in a bubble-like fashion. That being said, the underlying concepts of BitCoin especially those of anonymity will give rise to a successor "currency", BitCoin 2.0 perhaps, that will be less bubble-like in nature.

Make no mistake though, the governments of the world will react violently to get whatever BitCoin or BitCoin-like "currency" under supervision. The concept of the peasantry conducting business without governmental oversight will NOT be tolerated...period.

Most Dutch Tulip crazes follow their own previously observed cycles. Governments have no more reason to be concerned about BC than Linden Dollars or online poker - such network money games will have their own lifecycle until participants move on to other games. Bitcoin is nowhere near the original Dutch Tulip game in relation to the proportion of hot liquid money of gamblers who think they are investors being gambled through BC.

Peasantry have always conducted mostly honest business with each other regardless of government oversight - barter continues apace as a mutually beneficial activity, and in more modern forms of it I've observed in a German farming village, the various farmers and local merchants kept books with each other which they cleared with each other every 3 months or so. Sure the taxman comes knocking at the usual intervals (as will also occur with big winners at any gambling game), but having a healthy, stable and largely crime-free local economy makes taxes part of the cost of doing business.

The power used for bitcoining is free if done in homes where electricity is the main source of heating in cold weather. Except for computer fan wear and tear which can be a factor on computers not built for heavy computing (i.e. laptops).

Critics are already pushing back against the "environmental disaster" claim. Writing in Forbes, Tim Worstall says the energy being used is "simply trivial," amounting to 0.025 percent of the total US household electricity supply. And worldwide, that percentage would be far lower. Besides, Worstall says, "at some point Bitcoin mining will stop. There is an upper limit to the number that can ever be mined; I think I’m right in saying that we’re about halfway there at present. Thus this energy consumption will not go on rising forever. At some point it will come to a dead stop in fact." (The system is self-limiting, with a max of 21 million bitcoins.)

This is incorrect. Mining is a vital part of the transaction confirmation process and as such, mining will never stop. What will stop is the issuance of new bitcoins as a reward for mining; instead miners will get a fee from every transaction they process. Because transactions are prioritized according to the transaction fee paid (higher fees = higher priority), transaction fees will provide a strong incentive for miners to continue mining.

If this is true (and I believe it is because I've heard it elsewhere) I don't understand how Ars can justify not editing the original article to bring up this fact. This is like THE most important fact relevant to this discussion and it isn't even mentioned.

I think that both sides are missing things. The energy wasted turns into heat, which is useful in the winter but just means more cooling in the summer. Most of the energy being used would be wasted, produced so the grid can maintain capacity. Unless mining machines are turned off during peak hours though, they will effect the size of capacity needed (at something like 1/12 of their usage). New computers will undoubtedly make it cheaper and more efficient to mine, but energy costs will probably continue to rise. Bitcoins can be divided nearly infinitely, but how many people will engage in a system with deflationary expectations? What will the velocity of bitcoins look like?

I just don't think it will become the savior of money or some vast transformation like many people think. We already have virtual money, that's pretty much what banks and credit cards are. We already have market driven decentralized currency, that's gold futures. So we need to ask ourselves what problems bitcoins can solve, before adopting them. Or else it's just a speculatory bubble that will eventually collapse.

I think people are ignoring the real problem with Bitcoin and that's how large and unwieldy the block chain is getting. A lot of people don't like to rely on the so-called thin wallets and download the entire thing. It's several gigabytes and takes ages to download. How long before it becomes unreasonable to download the entire thing. This is a systemic problem and cannot be solved without a total re-write.

I think it's more likely the whole thing will collapse in on itself in a few years than expanding to a universal currency. No government will support a currency that they have no control over. If Bitcoin starts gaining traction they will likely make it illegal to deal in Bitcoins.

One thing that I wish the article put more detail in is a comparison between the "cost" of mining the bitcoins, and the "cost" of the computer just doing nothing. If an idle computer was using, let's just say, 600Wh, then is the mining computer using 650Wh really a big deal? Would it be a big deal if an idle computer was using 500Wh? 400Wh? 300Wh? If the computer's on at all, it's still using energy, after all.

This is just using the numbers from the article, understanding that other posters have mentioned that it's really more efficient then that.

One thing that always bothers me a lot in articles about the cost of things is how infrequently they compare to the cost that would have been spent anyway.

Of course reality is more complicated than this. The scenarios like those above are likely to overlap and smear together. I did not account for equipment depreciation or other operating costs. And there are probably issues with limits on the supplies of electricity in areas where electricity is cheapest. But I think that the fundamental point stands: the more revenue is produced through mining or the lower mining costs go, the more people will want to mine.

In technical terms the mining network could handle large increases in trading volume without adding any more computational power. But that is not what is going to happen. Self-interest will cause the mining network to grow or shrink according to the ratio of bitcoin value to electriticy costs. That is why I think that mining efficiency is not a major factor the total amount of power that the mining network will use. I don't think that this is a fatal flaw for bitcoin. I do think that issues like this should be acknowledged so that bitcoin proponents can have the best chance at finding clever solutions and can effectively respond to criticism.

Just because more people will want to mine doesn't mean more people actually will, or that they will all mine using identical equipment. It is a huge leap to suggest that mining energy usage will correlate linearly to metrics like transaction volume or market cap. Especially since such a suggestion has already been proven false, repeatedly.

I think people are ignoring the real problem with Bitcoin and that's how large and unwieldy the block chain is getting. A lot of people don't like to rely on the so-called thin wallets and download the entire thing. It's several gigabytes and takes ages to download. How long before it becomes unreasonable to download the entire thing. This is a systemic problem and cannot be solved without a total re-write.

I think it's more likely the whole thing will collapse in on itself in a few years than expanding to a universal currency. No government will support a currency that they have no control over. If Bitcoin starts gaining traction they will likely make it illegal to deal in Bitcoins.

There will come a point relatively soon where only miners will keep the entire blockchain; regular people will use thin wallets. This is a weakness, but it isn't a significant one.

As far as government intervention goes, it would have to be universal and sweeping to have any real effectiveness. Connecting to the Bitcoin ecosystem is too fast, easy and risk-free for governments to stop. To wit: music piracy is illegal yet governments are powerless to stop it. Using bitcoin is even easier to do, harder to detect and carries greater universal appeal. How will governments be able to stop that?

Even if Bitcoin somehow takes off as a stable alternative currency (and I don't think it will), I don't think governments will ban it. Why would they? Much easier to require people to report bitcoins as income (or capital gains, etc. as appropriate), and pretty much every government still requires you to pay your taxes in the local currency.

Two slightly overclocked 7970s can pull around 1.4GH on under 600W, and the current FPGA miners pull around 800MH on 40W or so (definitely under 50W). So... given badly wrong source numbers, it's hard to find much to believe in the conclusions.

The vast majority of servers don't reside in efficient datacenters. I would guess that the vast majority of bitcoin mining is done on whatever hardware the person has available (e.g., gaming computers), or by botnets that take whatever they can get.

My understanding was that there was a limited number of bitcoins that can be produced in a certain time, regardless of the computational effort put forth. So, if it costs ~$3 worth of electricity to produce ~$5 worth of bitcoins, people are going to mine like crazy until it costs more than $5 to produce $5 worth of bitcoins. Then mining will back off until it's roughly in equilibrium. Mining would also likely shift mostly towards those that can mine for the lowest costs, so it might be Iceland and their ridiculously cheap geothermal power. However, this mechanism would really kick in all the way until the currency has found its niche and is relatively stable.

You also have to figure in hardware costs, other electrical usage (summer time you might be hitting the AC extra to cover the heat output of your machines), foot print cost (your machines are taking up floor space somewhere that I assume you paid for) and also finally the "lottery" nature of it.

You can't really average it out truely. You could have one person get really lucky and "hit" it 5 times in a row, or infinitely. The odds are stacked against any of that, but to some limited degreee it is a lottery with more lottery tickets purchased the more computational power you have on your hands.

I would be rather curious to look at where the break even point is assuming 5 years worth of hardware usage before it is completely depreciated combined with electrical costs in an area to see where the break even point is on the value of bitcoins versus costs the mine them.

One counter to the cost/efficiency, I am sure there are a number of people using FPGAs or triple 7970s or whatnot, but how many are doing it, with say, a pair of 580s or generally older/less efficient hardware? Or crap PSUs? Etc.

The triple 7970 and modern CPU and efficient PSU is likely to only typify a rather "high end" bitcoin miner with "OTS hardware", not necessarily what the average bitcoin miner is using. Also if you want to stay with the most current stuff, your hardware costs go up dramatically.

As far as government intervention goes, it would have to be universal and sweeping to have any real effectiveness. Connecting to the Bitcoin ecosystem is too fast, easy and risk-free for governments to stop. To wit: music piracy is illegal yet governments are powerless to stop it. Using bitcoin is even easier to do, harder to detect and carries greater universal appeal. How will governments be able to stop that?

Seems they've already started the PR campaign, because I can't read anything about BC without seeing some reference to "Silk Road" and "illegal drugs"... all that is left to do is link BC to the buying/selling of child pornography, and 'they' will have all the public-facing sites - which is where most of the money actually enters/leaves the system - on the defensive.

That is any currency-trading systems Achilles heel: the entry/exit points for actually buying & selling the currency.

Governments don't have to "stop" Bitcoin, they just have to mess with the "trust" aspect of it just enough to keep it from going mainstream.

And if government agencies aren't already active members of the community - running mining rigs so they can monitor all the transactions, and develop ways to "follow the money" - then I will glady eat my tin-foil hat.

Reminds me of how, back in the day, the '.alt' newsgroups on Usenet went from being a free service offered by most ISPs - I used Verizon's Usenet servers, when I had a DSL account with them - to a pay-to-access system where encryption was an advertised feature of access - all because Bittorrent was taking most of the heat for file-sharing of video & music, but those sick pedophiles were trading kiddie porn on Usenet... and all the "respectable" ISPs dropped Usenet like a bad habit.

EDIT: I don't think music piracy is a good example of a hard-to-stop process, in the context of money changing hands - because of the one-to-many model of file-sharing - which doesn't apply in a "one-to-one via intermediaries" system like bitcoin.

The article states "In addition, Blockchain assumes the cost of electricity to be 15 cents per kilowatt hour; here in Chicago, it's only one-third that number."

Doesn't Ars have editors, and how is Nate Anderson paying 5 cents per kWh?

The answer to the latter question is probably news worthy given that "Chicago area households paid an average of 15.8 cents per kilowatt hour (kWh) of electricity in February 2013, up from 15.3 cents per kWh in February 2012." -- Bureau of Labor and Statistics (http://www.bls.gov/ro5/aepchi.htm)